The more time that I spend educating others about real estate investing and alternative housing opportunities, the more I realize that people are genuinely interested in exploring these avenues but are confused (and a bit fearful) with how they can get started, and how to continue growing their portfolios.
Since I work with many investors, I thought that it would be great if they would share their experiences, goals, journey, and things they have learned along the way, since at one time, they too did not own any real estate and literally overnight, had turned themselves from individuals into real estate investors.
Each investor is on his or her own journey and each one is in a different place. Follow along to hear how these investors got started, where they are now, and where they are heading. The goal of this series is to help empower you with some of the answers you have been looking for or to simply provide inspiration for how you too can do what they are doing.
Nick and Harriet are a young couple that owned other real estate investments before meeting with me. They’re intelligent, analytical, and to me, seem like the kind of couple that enjoys taking the path less traveled. Hear more about how they started out and how they have built themselves up to where they are now.
Nick and Harriet, Vancouver
Me: Can you tell us a bit about yourselves?
Nick: We are parents to a one year old daughter, living in Vancouver. I work in a software startup wearing several hats. My wife is a Management Consultant.
Me: When did you first buy the home you are living in and/or your first real estate investment(s)?
Nick: The UK housing market took a hit during the 2008 recession. We put a ‘cheeky’ offer in on a house near London, UK, in 2011. After 7 months and no other offers, our offer was eventually accepted.
The property was a maisonette close to a train station with frequent service into Waterloo Station. The building was beautiful but was overdue for an upgrade. We spent the next three years taking down a chimney, installing a new kitchen, re-plumbing a bathroom, replacing windows etc. During the renovations I found an old newspaper in the attic eaves from 1912, the year the Titantic sank. It was amazing to think it had sat there all that time.
We became accidental landlords in 2014 when, following an opportunity at work, we moved to Canada to set up a subsidiary of a UK business.
Me: How many rental properties do you own at this point? Where are they located?
Nick: We currently own five rental units. Three of these are located in the UK and two are located in BC.
Me: How did you finance your investment properties?
Nick: Coming out of school we started with a negative bank balance. Our first priority was to pay off an overdraft, then we turned to saving for a deposit, which took three years.
We were able to pay off our mortgage quickly on the first property. We were lucky that the Canadian job opportunity came with the awesome benefit that living costs in Vancouver were paid for by the company. Rather than succumb to lifestyle inflation and spend the excess, we instead put salary towards paying down the mortgage. In retrospect this may not have been the most prudent path to increase wealth as the money may have made more if it were invested, but it definitely felt good clearing the debt.
As UK-expats, we initially wanted to carry on investing in the UK. It’s difficult and expensive to get financing if you’re not a UK tax resident. We therefore saved up and made cash purchases for the next two properties. We stayed away from the major hubs that attract investment and instead invested in more marginal areas where the yields were higher. The UK works differently to Canada, as there aren’t sales-side realtors. Sometimes you may find a ‘sourcing agent’ but this is a dark art and there’s no licensing. You therefore need to find your own means to arrange viewings and make offers. Our parents provided the boots on the ground and we made the next two investments without visiting the properties.
We then made a further investment in Canada as we had access to financing. We calculated the yield and performed stress testing to assess different scenarios and to check the cash flow remained positive under all contingencies. All previous investments had been on a long term rental basis. We decided to go with serviced accommodation (AirBNB) with this one. After three months of renovations, and then three months of running an AirBNB, Covid hit. We lost one booking, then two bookings, then all our bookings. Luckily we had backup strategies that we knew would keep the property cash flow positive. We switched to short term furnished rentals. We were contacted by medical workers that wanted to move out of their family homes to keep their parents safe. We felt we were contributing to Covid efforts and it kept the investment cash-flow positive, which was a win-win.
Me: Do you use a property manager for any of your investments?
Nick: In the UK we use a property manager. These typically charge between 8-10% for an all-inclusive service (finding tenants, background checks, deposit registration, arranging maintenance etc).
In Canada we’re self-managing. We have some awesome people locally that help out with cleaning, maintenance and are there for any guests to call if they struggle with obtaining keys etc when checking in.
Me: What is your end goal with real estate investing? What do you see for yourselves and where you are at in that journey?
We intend to live our lives in a sustainable way including our finances. Our goal has been to generate passive income to cover our monthly expenses. This financial freedom and self-reliance provides fantastic life opportunities in terms of choosing work that is rewarding, the flexibility to travel slowly for long periods of time, the space to set up an entrepreneurial venture, and the ability to stay home when it suits to look after our baby.
Me: Would you say you are good with budgeting your expenses?
Nick: We maintain a balance sheet (NET Wealth) and cash flow record (monthly in-goings and out-goings). We don’t pay much attention to individual expenses, we just correct course if there’s a month-to-month trend that shows expenses exceeding passive income.
Me: What type of lifestyle would you say you live and why?
A modest lifestyle with the odd luxury. We treat ourselves to things that add value to our lives, usually that means good food, travel and outdoor activities with friends. We don’t spend on items that add no value, such as fancy cars or branded clothes.
Me: Why did you choose the city or type of investment property that you own?
Nick: Apart from our first property which was purchased to live in, we’ve purchased each subsequent property on its individual merit. We mostly look at gross yield and ability to generate free cash flow.
Me: What is your gross rental income on that investment property and how much was the purchase price?
Nick: Post-acquisition, we’re really only interested in net yields. This varies for our properties from 4-7%.
Me: What is one piece of advice you would offer another investor, especially a new investor?
Nick: Don’t buy in Vancouver! Appreciation is speculation. It’s likely the property would be cash flow negative if you rent it out which limits the capacity to respond to work offers or a change in circumstances. Find an area where the gross yield makes sense, buy and hold. Typically this means looking for pockets outside Vancouver where the numbers stack up. That being said, there’s definitely good reasons to buy in Vancouver if it truly is your long term home – there’s emotive appeal to living in a place you own and renovating it to your personal tastes.
Me: What would you do differently next time?
Nick: We’ve thoroughly enjoyed our property investing journey. We now have a baby which limits our ability to do intensive renovations in short periods of time. We’ll probably outsource more of the work. This will likely include a turnkey general contractor for renovations and a local property manager for operations.
Me: What are your plans for the next 3 years?
Nick: Alongside property we’ve been fairly active with index funds with low cost providers such as Vanguard. This provides some diversity and liquidity to the portfolio.
This year we intend to complete a property investment in the UK and a property investment in Canada, if we can find reasonable yields. If not, we may just focus on the low cost index funds.
We’ll probably stop for a while at that point and decide where we want to put down roots long term, ideally with a long period of travel in-between.
Me: Is there anything else you’d like to share or elaborate on in terms of your strategy?
Nick: The hardest part is getting started. There’s no rocket science in this. All the information you need is out there on the internet including podcasts, e-books, and forums.